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Business & Investment

EMI Licensing in Latvia

The banking industry, like many others, is experiencing many changes due to the coronavirus pandemic. Traditional banks have been forced to limit visits to branches. Therefore, the so-called neo-banks, which have been crowding them out on the market in recent years, have gained even more advantages. Below, we tell you everything about EMI licensing in Latvia and how these establishments differ from ordinary banks and whether they are safe to use. Thus, EMI – payment system, Internet bank, neo-bank. Such a financial company is created in order to provide all the necessary banking operations on accounts. Based on the current situation in the world, such institutions are in great demand, as they greatly simplify the conduct of international activities for every modern businessperson.

Neobanks either obtain a banking license themselves or work together with a traditional bank. Not a single full-fledged challenger bank operates in Latvia, all three global players of this kind represented on the market – Paysera, Revolut and Wise (formerly TransferWise) – work for us as payment companies. They issue cards of international payment systems and offer Latvian customers the opening of current accounts and international transfers, not only to individuals, but also to companies. Their advantage is also a favorable exchange rate. This is especially true for Wise. Revolut also supports around 150 currencies in one account and offers trades in cryptocurrencies and stocks. All operations can be carried out using a smartphone. Fintech startups have greatly overtaken the traditional financial sector with the introduction of biometric authorization.

Brief Differences Introduction

Participants in the Latvian financial technology market that have the right to provide payment services are divided into two groups – these are PI and EMI. With the help of the first, customers make payments, that is, give them an order to transfer funds to the recipient for a specific purpose. The second are organizations that themselves issue electronic money. They can also be used to pay for services or purchases, but they are usually accepted by a limited circle of merchants. For example, in the Mobilly app, customers buy electronic money that is stored in the phone and can be used, for example, to pay for parking lots. Some companies combine both functions. In order to legally engage in these types of activities in Latvia, companies must either register or obtain a license from the regulator.

The founder of a neo-bank in Latvia acquires the right to work with individuals and organizations according to a scheme that, in general terms, is as follows:

  • issuance of virtual currency;
  • exchange for customer cash;
  • mandatory redemption from holders as requests appear.

In addition, within the framework of special systems for e-payments, funds are stored. If necessary, you can store money on smart cards.

This structure in Latvia gives a lot of advantages:

  • support for the Sandbox program;
  • the ability to check clients remotely in several ways;
  • relatively quick verification and consideration of the application (about six months);
  • the possibility not to live in the issuing country;
  • no requirements for the presence of a legal entity at the time of application.

The last point requires clarification. A payment system license is issued only upon the existence of a legal entity registered in the same jurisdiction where the application is being considered. However, according to the laws of the republic, the applicant is given six months from the moment of filing papers to open a neo-bank.

Latvian registration also gives the company itself a long list of preferences:

  • one of the lowest tax rates in the region;
  • loyal requirements to the authorized capital;
  • relatively simple procedure.

In connection with the above, most businessmen choose Latvia for themselves.

There is an obligation to assess the risks associated with customers, geography, products, services, transactions or service channels. All risks must be constantly monitored and assessed. The company must create an AML manual and implement the procedure in the company’s work.

Standard package of documents must include:

  • papers on the education and experience of employees, proving their competence;
  • certificates of no criminal record;
  • office lease agreement;
  • bank account statement.

It is important that the founder of the organization also has a specialized education. In addition, officials will be asked to provide evidence of at least three years of experience in the segment. Despite the apparent simplicity, the procedure is quite complex and confusing. Therefore, applicants are advised to contact professionals for registration.

A modern approach to regulation allows EMI in Latvia to issue electronic money on the blockchain. The use of blockchain technology and other modern technologies in the field of traditional finance enables Latvian licensed e-money institutions to provide a wider range of services and create competitive advantages compared to companies licensed in other EU jurisdictions and practicing traditional financial institution licensing methods.

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